Sheraton shift may hurt tax revenues

The Sheraton Steamboat Resort in Steamboat Springs has announced plans for a complete redesign and upgrade of the resort.

Steamboat Springs  When announced last month, a planned reconfiguration of the Sheraton Steamboat Resort was hailed not only as a smart business decision but also a benefit to Routt County finances.

County officials are now scoffing at that logic.

Starwood Hotels & Resorts Worldwide purchased the Sheraton Steamboat Resort in May. In August, Starwood announced plans for a complete redesign and upgrade of the resort. David Matheson, a spokesman for Starwood Vacation Ownership, said in August that local government stood to gain from the reconfiguration - a shift from commercially renting rooms to selling them for residential ownership - because those who bought the ownership units would be subject to local taxes.

But county officials this week said the total taxes collected from the Sheraton most likely will fall, not rise, because of the significant gap between residential and commercial property tax rates.

The difference could cost Routt County more than $200,000.

Under Starwood's plan, 80 hotel rooms and 23 multiple-bedroom rental units will be converted into 47 "vacation ownership villas." County Assessor Mike Kerrigan said even though the villas would be rented like hotel rooms before they are sold, and when they are unoccupied, they most likely would be taxed as residential, not commercial, units. The state property tax rate for commercial property is 29 percent, while the residential rate is just 7.96 percent.

"It could be classified as a residential unit, even if they sell them weekly or nightly," Kerrigan said. "It would reduce the taxes dramatically."

As long as Starwood markets the villas for sale to individual owners, Starwood will receive the residential tax rate before the villas are sold, even if they are rented out like traditional hotel rooms in the meantime.

County commissioners find that unfair.

"If it looks like a hotel and behaves like a hotel, it should be treated like a hotel," Commissioner Diane Mitsch Bush said.

Commissioner Doug Monger said the move would give the Sheraton an unfair advantage against some of its competitors.

"Everything we try to do is toward creating equality and equity for all taxpayers," Monger said. "This whole situation is inequality. : It isn't fair at all for other people in the hotel and motel business."

Must be the money

Kerrigan said he believes the tax break is part of the motivation for switching to a focus on ownership, rather than rental, units.

"They wouldn't be doing it if it didn't generate more income for them," Kerrigan said.

In 2007, the Sheraton paid $303,740 in property taxes. A residential property of the same value would have paid only $83,371.

Kerrigan said he couldn't predict what the tax effect will be once the Sheraton is reconfigured, because it depends on the final mix of residential and commercial units, and any resulting changes in the value of the Sheraton property.

It is unlikely, however, that the county could break even on the taxes it collects from the Sheraton.

For that to happen, the portions of the property being switched from commercial to residential would have to more than triple in value. For example, if the Sheraton was to switch completely from rental to ownership units, it would have to increase in value from its current $25.9 million to $94.2 million for the property tax collected to remain the same.

Even though the property tax collected from the Sheraton most likely will decrease, property tax beneficiaries, of whom the Steamboat Springs School District is the largest, likely won't see any shortfall.

"It ends up being a redistribution," Monger said. "So the county doesn't get shorted, but everybody else who pays property taxes ends up getting mistreated."

Kerrigan said if Sheraton officials are unable to sell the ownership units within two years, they would have to start paying commercial property taxes. Starwood probably wouldn't let that happen though, Kerrigan said, and would likely borrow a tactic from the Steamboat Grand Resort Hotel, which auctioned off its remaining unsold ownership units in March 2006 to avoid the two-year deadline.

"Their two-year time window was running out," Kerrigan said. "They knew they were going to have a huge tax bill."

Matheson, the Starwood spokesman, was unavailable to comment for this story.